IN
THE UNITED STATES DISTRICT COURT
FOR
THE DISTRICT OF COLUMBIA
________________________________________________
UNITED STATES OF AMERICA, |
Plaintiff,
Defendant. |
__________________________________________
Attorney General ELIOT SPITZER, et al.,
Plaintiffs,
Defendant.
COMPUTER
AND COMMUNICATIONS INDUSTRY ASSOCIATION AND
SOFTWARE
AND INFORMATION INDUSTRY ASSOCIATION
Edward J. Black, President (Bar No. 113282)
Ken
Wasch, President (Bar No. 934984)
Jason Mahler (Bar No. 435605)
Software and Information
Computer & Communications
Industry Association
Industry Association
1730 M Street, N.W
666 11th Street, N.W.
Washington, D.C. 20036
Washington, D.C. 20001
(202) 451-1600
(202) 783-0070
Page
They
Reflect A Serious Structural Problem...................................................
6
Threat
Or To Reinvigorate Competition..............................................................................
11
TABLE
OF AUTHORITIES
Page(s)
Cases
(7th Cir. 1998), cert. denied, 525 U.S. 1071
(1999) ...........................................................
7
(D.C. Cir. 1995) ........................................................................................................
22, 37
(D.D.C.) ..........................................................................................................................
13
464 U.S. 1013 (1983) ......................................................................................................
47
Remarks of
Charles F. Rule before The Brookings Institution,
Developments in Telecommunications Policy, Oct. 5,
1988.................................................
20
(rev. ed. 1996 & 1999 supp.) ..................................................................................... passim
http://www.zdnet.com/pcweek/stories/news/0,4153,1018247,00.html.......................... 19, 46
http://www.microsoft.com/msft/speech/analystmtg99/ballmerfam99.html.......................... 7, 13
Apr. 25, 2000,
http://www.microsoft.com/billgates/speeches/04?25winhec00.htm................ 7
http://www.zdnet.com/sr/stories/issue/0,4537,392493,00.html............................................
16
May 1, 2000, at A34...................................................................................................
33, 45
(D.C. Cir. filed July 25, 1989)...........................................................................................
52
No. 725, Oct. Term, 1909...........................................................................................
41-42
Remedy Sought, Seattle Post-Intelligencer, Nov. 10,
1999, at A1.................
48
at C4.................................................................................................................................
50
Times-Picayune, May 2, 2000, at C1........................................................................
48
Aims to Neutralize Antitrust Efforts, Wash.
Post, May 7, 1999, at A1 .....................
21
Act Monopolization Cases, 2 Int’l
J. Econ. & Bus. 263 (1995) ...............................
52
Rating and $145 Price Target, Jan. 14, 2000..................................................................
53
http://www.zdnet.com/pcmag/stories/opinions/0,7802,2559857,00.html............................. 45
June 2, 1999, http://www.zdnet.com/sr/stories/0,4538,
2268932,00.html...........................
16
http://www.zdnet.com/zdnn/stories/news/0,4586,2556472,00.html.....................................
16
Growth
in First Quarter 2000, press release,
Apr. 24, 2000,
http://gartner11.gartnerweb.com/dq/static/about/press/pr?b200019.html................................ 7
Microsoft
Plows Ahead with its Plan to Dominate the Internet, Industry
Standard, May 22, 2000, at 120................................................................................
19
http://www.mercurycenter.com/svtech/columns/gillmor/docs/dg042300.htm........................ 46
(San Jose
Mercury News) Apr. 24, 2000,
http://weblog.mercurycenter.com/ejournal/2000/04/24........................................................
43
Resellers
Broaden Scope of Enterprise Agreements, Computer Reseller
News, Apr. 20, 1998,
http://www.techweb.com/se/directlink.cgi?
CRN19980420S0003.......................................................................................................
14
Nov. 5, 1995, at 50...........................................................................................................
38
at 48...........................................................................................................................
37, 40
Apr. 26, 2000, at E1 ........................................................................................................
38
April 24, 2000, at A1 .......................................................................................................
33
to Change, Wash. Post, Apr. 19, 2000, at E1 ......................................................
17, 23
Seattle Times, Feb. 17, 1999, at A1 .........................................................................
21
May 17, 2000, at A1.........................................................................................................
22
31 Conn.
L. Rev. 1285 (1999)...............................................................................
41, 51
at A26.................................................................................................................................
7
Will Be No Breakup, N.Y. Times, Apr.
26, 2000, at C1...........................................
23, 43
Apr. 5, 2000.....................................................................................................................
52
74 Antitrust
& Trade Reg. Rep. (BNA) 49 (Jan. 15, 1998).................................. 21
licensing/agree.htm (visited May 2000).........................................................................
13, 14
1998,
http://www.microsoft.com/enterprise/licensing/agreement/Eawhite.doc................ 13, 14
Inc., Nov. 11, 1999, http://www.g2news.com....................................................................
45
To Quit Lawsuit Coincidental, Chi.
Trib., Dec. 25, 1998, at 3 ....................................
21
http://www.techweb.com/wire/story/TWB19991203S0020......................................... passim
zdnn/stories/news/0,4586,2560616,00.html ......................................................................
23
Pieces Would Be Enough?, S.J.
Mercury News, May 1, 2000.................................
46
Outcomes, International
Data Corp. (1999)........................................................................ 52
No. 398, Oct. Term, 1910..........................................................................................
42, 51
Dallas Morning News, May 4, 2000, at 3F..........................................................
46
Observers, InfoWorld.com, Apr. 28, 2000,
http://www.infoworld.com/
articles/pi/xml/00/04/28/000428pivendorreax.xml...............................................................
49
at E1.................................................................................................................................
49
News Service, March 11, 1999.........................................................................................
21
May 15, 2000, at B1.........................................................................................................
22
Antitrust Case, Wall St. J., May 16, 2000, at A3........................................................
22
INTEREST OF THE AMICI CURIAE
The Computer & Communications Industry Association
(CCIA) and the Software and Information Industry Association (SIIA) are
technology trade associations. Each has a long pedigree, broad membership and a
record of participation in antitrust matters involving Microsoft. CCIA was one
of the principal amici in the review of the current consent decree in both this
Court and the court of appeals. SIIA has appeared in this proceeding as amicus
curiae supporting the United States at the liability stage. In this brief, the
two organizations present their views on an appropriate remedy.
1. The
Computer & Communications Industry Association is an association of
computer technology and telecommunications companies that range from small
entrepreneurial firms to some of the largest members of the industry. CCIA’s
members include equipment manufacturers, software developers, providers of
electronic commerce, networking, telecommunications and on-line services,
resellers, systems integrators, and third-party vendors. Its member companies
employ nearly one million persons and generate annual revenues exceeding $300
billion. CCIA’s mission is to further the business interests of its members,
their customers, and the industry at large by being the leading industry
advocate in promoting open, barrier-free competition in the offering of
computer and communications products and services worldwide. CCIA’s motto is
“Open Markets, Open Systems, Open Networks, and Full, Fair and Open
Competition,” and its website is at www.ccianet.org.
For more than 26 years, CCIA has supported antitrust
policy that ensures competition and a level playing field in the computer industry.
CCIA supported the Tunney Act in the 1973 congressional hearings preceding the
enactment of that legislation, and participated as amicus curiae in the
proceedings examining the current Microsoft consent decree. CCIA is intimately
familiar with the shortcomings of that decree, and its failure to prevent or
deter Microsoft from continuing on an anticompetitive course.
2. The
Software and Information Industry Association is the world’s largest trade
association representing the interests of firms in the software, information
and Internet industry. Formed on January 1, 1999, through the merger of the
15-year-old Software Publishers Association (SPA) and the 30-year-old
Information Industry Association, SIIA leads industry efforts in e-business,
copyright, privacy, taxation and other public policy issues. SIIA’s website is
at www.siia.net.
3. CCIA,
SIIA, and their members participate in all aspects of the computer software,
information, communications, and Internet industries. They have a vital interest
in the outcome of this proceeding because the future structure of the computer
software industry and of Internet computing — and the range of conduct that the
law permits within it — will determine to a substantial extent whether they
thrive in a fair, innovative, and competitive environment. Competitive markets
produce the greatest amount of innovation and provide consumers with the best
products at the lowest prices. Just as those results benefit consumers, they
are in the best interests of the industry.
CCIA, SIIA, and their members are thoroughly familiar
with the markets and practices at issue in this case, and with the practical
significance of that conduct. SIIA and CCIA reject the notion that the software
industry can function efficiently only under rules prescribed by a monopolist
who dictates when innovation may take place, what form it may take, and who may
engage in it. Like the computer, communications and content industries, the
software industry functions best when companies within it are free to engage in
a dynamic and unrestrained competitive process. In competitive markets,
innovation occurs and software interoperates smoothly without Microsoft’s
governance.
4. Although
Microsoft used to be a member of SIIA — and a member of the SIIA Board of
Directors — Microsoft resigned from SIIA and withdrew its funding after SIIA
filed an amicus brief criticizing Microsoft’s conduct at the liability stage of
this proceeding. Microsoft has also induced some other companies dependent upon
it to withdraw funding from both amici. These events shed a strong light on the
remedy issue now before the Court. Microsoft’s power and wealth give it the
ability to both punish its critics and retain battalions of lawyers, lobbyists,
and publicists to undermine the government at every turn. If the Court adopts a
“good conduct” remedy in this case, it can be sure that Microsoft will seek to
silence those who would inform the decree court of future infractions, and will
dispute the meaning of every provision in the decree — just as it did after the
entry of the consent decree in 1995 — with the predictable consequence that the
decree will be reduced to a dead letter. As we demonstrate in this brief,
Microsoft is too powerful to be “fenced in” with a good conduct code, no matter
how carefully that code is written.
INTRODUCTION
AND SUMMARY OF ARGUMENT
There is little dispute that this is the most
important antitrust case of our generation, the case that will determine whether
the structure of software markets — and the progress of the 21st Century
economy — will be based on competition or monopoly. Few, if any, issues will
affect consumers more in the coming years. Because the formulation of a remedy
for antitrust violations is the “most significant phase of the case,” United
States v. Glaxo Group Ltd., 410 U.S. 52, 64 (1973), it is crucial
that the Court arrive at its judgment with both care and speed. Software
markets move quickly; if permitted to continue on its course unimpeded,
Microsoft can consolidate the rewards of its anticompetitive conduct quickly as
well. The plaintiffs’ evidence shows that, after more than a decade of
antitrust enforcement scrutiny, Microsoft continues to use illegal means to
short circuit competitive challenges to its dominance. It is time for those
abuses to end.
A. As
this Court has recognized, the structural problem that has given force to
Microsoft’s anticompetitive abuses is the applications barrier to entry. That
is the structural condition that Microsoft has exploited (and has reinforced
and preserved). No list of behavioral proscriptions could effectively contain
that exploitation. Microsoft has shown remarkable inventiveness in devising new
ways to leverage its market power to foreclose competition. Accordingly, any
effective remedy must attack this problem, whether directly (as proposed in the
Remedies Brief of Amici Curiae Robert Litan et al. (“Economists’
Brief”)), or indirectly, as the plaintiffs propose.
A structural remedy is needed because behavioral
remedies do not address the two principal competitive problems demonstrated by
the trial evidence and subsequent events:(1) Microsoft’s monopoly power in
operating systems, which provides multifaceted opportunities for abusive, coercive
conduct that excludes competition, and (2) Microsoft’s successful leveraging of
that monopoly into a monopoly in the Internet browser. The latter monopoly
provides a chokehold over Internet computing that permits Microsoft to
transform open-standard Internet computing into a Microsoft-proprietary domain.
As the Court is well aware, if a remedy requires future, reactive enforcement
proceedings to impose tangible constraints on Microsoft, Microsoft will use
those proceedings as an opportunity for gamesmanship and obstruction — annexing
additional markets to its monopoly in the meantime, as it has done while the
1995 consent decree has been in force. Plaintiffs’ Proposed Final Judgment
provides a measured but effective way of dealing with these problems, and does
so without the delay and administrative intrusion occasioned by a remedy that
relies on conduct restraints alone.
Plaintiffs’ Proposed Final Judgment accords with the
remedial principles laid down by the Supreme Court in antitrust case after antitrust
case. Antitrust remedies must restore competition, neutralize a monopoly that
has been abused, deprive a violator of the benefits of its illegal conduct, and
prevent a recurrence of anticompetitive activity. Where the antitrust violation
involves monopoly, and there is a continuing incentive and ability to abuse
that monopoly, only a structural remedy can satisfy these criteria.
B. Plaintiffs’
Proposed Final Judgment provides an appropriate framework for relief on the
facts of this case. The reorganization of Microsoft into separate operating
systems and applications businesses takes away the operating system’s control
over the most significant aspects of the applications barrier to entry —
including control over the Internet browser achieved by Microsoft’s illegal
conduct proved at trial. Although the operating systems company will remain a
monopoly immediately after the reorganization, it will face the Office and
Internet Explorer monopolies as competitive threats rather than reinforcements
of its power. Each of the companies to be formed in the reorganization will
have incentives to undermine the other’s monopoly control, whether by entering
the other’s market, by ensuring interoperability with the other’s rivals, or
merely by cooperating in the development of cross-platform middleware aimed at
the other’s platform. Consumers benefit from the unleashing of both actual and
potential competition.
The conduct restrictions in Plaintiffs’ Proposed Final
Judgment do not prevent either successor company from engaging in any line of
business, and thus avoid the principal drawback of the AT&T decree.
The proposed conduct provisions instead are appropriate interim measures to
prevent Microsoft from engaging in anticompetitive behavior similar to that
proved in this case, without impinging on the development of software. Given
Microsoft’s track record, such restraints are needed until the reorganized,
independent successor companies establish a competitive dynamic.
This Court need not delay final resolution of this
case if it enters Plaintiffs’ Proposed Final Judgment. That Judgment would be
final for the purposes of an expedited appeal to the Supreme Court, and the
details of implementation can be formulated while the appeal is pending. Before
judgment is entered, Microsoft may be afforded an opportunity to cross-examine
the plaintiffs’ witnesses promptly, but should not receive additional
discovery. Microsoft knows its own organizational structure and its own illegal
practices. It should not be permitted to use the judicial process to seek out
and intimidate those who provided information to the government, in hopes of
deterring assistance by customers and others in the enforcement of the decree
and in the reporting of future violations.
C. Although
Plaintiffs’ Proposed Final Judgment goes far toward undoing the competitive
harm caused by Microsoft’s widespread monopolistic abuses, a small but
competitively significant adjustment would make the remedy more robust. The
Court should supplement the proposed reorganization with a provision separating
the Internet Explorer intellectual property and associated personnel into a
separate company (with a license of the current Internet Explorer product to
the operating systems and applications companies). In the alternative, the
Court should order that the applications company make the Internet Explorer
product — which provides no royalties now — an “open source” product so that
other software developers could use the source code. Either of these small additions
would ensure that the monopoly over productivity applications that Microsoft
holds does not supplant the operating system as the point of leverage for a
monopoly over the software used in Internet computing.
D. At
the remedy stage of this case, the danger is not of doing too much but of doing
too little. This is the most significant monopolization violation proved in a
generation, and the most significant monopolization case litigated to judgment
in many decades, in an industry of surpassing importance to the current and
future national economy. If Microsoft walks away from this case with
only another set of conduct restrictions to evade, Section 2 of the Sherman Act
will be drained of much of its practical effect. That is a price the public
should not be asked to pay.
ARGUMENT
MICROSOFT SHOULD
BE REORGANIZED TO REDUCE ITS MONOPOLY POWER
A. Microsoft’s
Violations Call For Structural Relief Because They Reflect A Serious Structural
Problem
1. Microsoft’s
Violations Reflect Pervasive and Multifaceted Abuses of Monopoly Power
a. This
case involves the monopolization of the software central to current desktop
computing — the operating system — and the attempted (now, successful) monopolization
of the software that is central to Internet computing — the Internet browser.
Microsoft’s anticompetitive conduct was not narrow and confined. Rather,
Microsoft aimed its pervasive illegal practices at any product or firm that
presented even a potential threat to Microsoft’s monopoly power. That conduct
was not the work of a few rogue employees without corporate authority or
control. To the contrary, anticompetitive conduct was orchestrated at the
highest levels of the company — often under the direction of Bill Gates
himself, a state of affairs that has continued since the evidence closed. See
Henderson Dec. ¶ 69 (citing Gov’t Remedy Ex. 1).
Moreover, despite Microsoft’s recurrent contentions,
its monopolistic abuses harmed consumers. See Findings ¶¶ 57, 60, 62-66,
171-174, 210-216, 225-229, 247, 339-340, 379, 397, 408-412.Consumers have lost
the price and functionality benefits that competition produced in the browser
market before Microsoft achieved dominance, and could produce in operating
systems (and other middleware) as well. Consumers feel this injury every time
another hour is lost from a crash caused by an operating system that is under
no competitive pressure to improve stability. The plaintiffs’ evidence
substantiates the breadth of consumer harm, see Henderson Dec. ¶¶ 28, 92-98;
Romer Dec., ¶¶ 4-5, 11, 14, as did SIIA’s amicus brief on liability
issues (at 32-41).[1]That
these lost benefits are not easy to quantify does not diminish their
significance. Moreover, because the antitrust laws presume harm from illegal
monopolization — only a harmful monopoly would have to act illegally to protect
its position — such quantification is irrelevant to the remedial issues here.
See Blue Cross & Blue Shield United v. Marshfield Clinic, Inc.,
152 F.3d 588, 591 (7th Cir. 1998) (Posner, C.J.), cert. denied, 525 U.S. 1071
(1999). Indeed, that a “plaintiff is unable to quantify the harm that the
defendant's practice has inflicted” supports strong injunctive relief
rather than weighing against it. Ibid.
To contend successfully that consumers are not harmed
by the monopolistic suppression of competition that has insulated Windows,
Microsoft would have to convince the Court of one of two equally merit less
propositions. First, Microsoft might claim that PC operating systems constitute
an unimportant market. But Microsoft has acknowledged elsewhere that the 130
million PC operating systems sold per year are and will remain “at the center
of” computing.[1]Second,
Microsoft might contend that competition does not provide consumer benefits in
the PC operating systems market. But that argument has been “foreclose[d]” by
Congress and the Supreme Court. National Society of Professional Engineers
v. United States, 435 U.S. 679, 690 (1978).
b. When
“a firm found to have monopoly power has committed a substantial antitrust
violation,” a remedy must “make the market more structurally
competitive.” Phillip Areeda &
Herbert Hovenkamp, Antitrust Law 207 (1999 supp.).Microsoft plainly has
“monopoly power” and Microsoft’s conduct plainly amounts to “a substantial
antitrust violation.” See Conclusions, pp. 6-7, 20-21, 24, 26, 32-34.Through a
“deliberate assault upon entrepreneurial efforts that * * * could well have
enabled the introduction of competition into the market for Intel-compatible PC
operating systems,” Microsoft “trammeled the competitive process through which
the computer software industry generally stimulates innovation and conduces to
the optimum benefit of consumers.” Id. at 20.
This is not a case of a firm with a large market share
that strayed over the legal limit in a few isolated instances. Rather,
Microsoft conducted a monopolistic campaign of a range and breadth with few
parallels in American economic history — and this record reflects only a snapshot
of a company that has made anticompetitive activity a primary business tactic
for many years. Microsoft’s effort to protect its operating systems monopoly —
and to extend that monopoly into the Internet browser market — encompassed a
full catalogue of exclusionary practices: market division proposals, coercive
exclusive arrangements, tying, and many less orthodox forms of predatory
conduct that exploited Microsoft’s market power.